#310—A historic money laundering settlement
Also, calls for a federal payments regulatory framework
Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out our last report here.
This week:
A historic money laundering settlement
A federal payments regulatory framework
Stuff happens
1. A historic money laundering settlement
In just 4 years, TD Bank allowed $670 billion of illicit drug money from three separate money laundering rings to flow through its system.
Here’s the AP (via Chris Lewis):
TD Bank will pay approximately $3 billion in a historic settlement with U.S. authorities who said Thursday that the financial institution’s lax practices allowed significant money laundering over multiple years.
Canada-based TD Bank pleaded guilty to conspiracy to commit money laundering, the largest bank in U.S. history to do so, Attorney General Merrick Garland said.
“TD Bank created an environment that allowed financial crime to flourish,” Garland said. “By making its services convenient for criminals, it became one.”
High-level executives were alerted to serious problems with the bank’s anti-money laundering program, but failed to correct them as employees openly joked about how easy it seemed to be for criminals to launder money there, Garland said.
The bank is the 10th largest in the United States, and its CEO said the company takes full responsibility and has been cooperating with the investigation. It’s been taking steps to fix its U.S. anti-money laundering program, including appointing new leadership and adding hundreds of new specialists, said TD Bank Group CEO Bharat Masrani.
2. Calls for a federal payments regulatory framework
At the Chicago Payments Symposium, hosted by the Federal Reserve Bank of Chicago, Under Secretary for Domestic Finance Nellie Liang called for a federal payments regulatory framework (via Chris Lewis).
She also acknowledged the growing importance of stablecoins:
Stablecoins are another new money-like instrument. Like other forms of private money, a stablecoin typically claims it can be redeemed 1 for 1 in U.S. dollars.[xiii] Today, stablecoins are used mostly for payments and trading within the crypto ecosystem, but some proponents believe that stablecoins could become used more widely to pay for real goods and services, such as in situations where people may lack access to other stable assets. There is some evidence that this is already happening.[xiv] Stablecoins have also grown rapidly in the last five years, and now have a market capitalization of $172 billion.[xv] And because stablecoins serve as a money substitute in some markets, including increasingly by illicit actors, this market capitalization supports a much larger transaction volume. Some estimate that Tether supports $190 billion of transaction volume daily.[xvi]
These changes to how we make payments may offer significant efficiency gains, advance financial equity, and even facilitate new kinds of transactions.[xvii] However, they may also present some risks if not appropriately managed, including risks to consumers and financial stability.
On the goals for a federal payments framework:
A federal framework for nonbank payment service providers may be better able to address these concerns. Specifically, a federal framework can:
1. Address risks which are essential to confidence in the money and payments system, like customer runs, payments disruptions, and financial stability risks. It should better support a degree of confidence in nonbank money instruments. This would include consistent reserve requirements and being able to intervene immediately in a crisis to ensure trust and continuity of services. Coordinating an intervention for a nation-wide or global company across dozens of state regulators would not be possible in time.
2. Promote innovation and fair competition that benefits consumers through a consistent and comprehensive, though calibrated, regulatory framework for bank and nonbank payments providers. It is not the case today that the same activities and the same risks have the same regulatory requirements. The introduction of a federal prudential regulatory framework for payments also raises the possibility that e-money issuers could get direct access to some public payment rails, like FedNow.[xxiv] Direct access would promote competition and innovation for payment services.
3. Support leadership of U.S. financial firms globally. A clear, robust framework for domestic payments promotes a level playing field internationally.
…
A federal payments framework that includes the key foundational standards discussed above can both simplify our domestic regulatory patchwork and make the regulatory framework more robust. We can promote innovation and competition, while better protecting consumers, the payment system, and the financial system. We can create a more level playing field domestically and also support U.S. global financial leadership.
These goals and solutions I have offered for e-money issuers are similar to points that the Secretary, the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and I have made regarding a federal regulatory framework for stablecoins.[xxix] We have long identified stablecoins as presenting payments and run risks like those presented today by e-money issuers. At the same time, stablecoins present some unique risks because they rely on distributed ledger technology and thus may involve a different set of intermediaries and can be transferred peer-to-peer. We continue to support efforts in Congress to establish such a framework.